May 2021 Market Roundup
Spotlight on Gold & Silver
May 2021 was a volatile month for the gold price, with a low of $1,778.05 at the start of the month to a high of $1,904.30 towards the middle of the fourth week – a difference of over 7% which saw gold hitting a price not seen since January 2021. This rally was partly helped by a weaker dollar and growing inflation concerns after Federal Reserve officials maintained a dovish stance over rates.
Gold has now recovered from losses seen throughout the start 2021, with a weaker dollar and lower bond rates invigorating demand for the precious metal. In addition, uncertainty surrounding the planned global economic recovery from the pandemic has also spurred a renewed push to the safe-haven of gold for many investors. Similar movement was seen in the silver markets during May, with prices ranging from $26.29 to $28.47 towards the middle of the month, which represents an increase of over 8%.
In China, it was reported that the Q1 gold demand had risen by nearly 94% year on year, due to talk of further economic recovery in the area. In contrast to this, the ongoing impact of the Covid-19 pandemic in India has continued to affect the country’s physical gold market, with dealers selling gold at discounts of up to $2 per ounce. One of the primary drivers of gold demand in India is gifting and weddings. As with other countries, due to Covid-19 restrictions, many weddings and celebrations have been cancelled in recent months, resulting in decreased consumption of the yellow metal. Furthermore, May 14th is celebrated as ‘Akshaya Tritiya’, the day when Indians consider buying gold as auspicious, but retail shutdowns and restrictions have meant that many purchases for this important event did not take place this year. This reduction in demand in India has international significance; India is the second largest consumer of gold in the world, and a decrease in demand could impact the global spot-price of gold.
Another important region for gold demand is Germany. It is often anecdotally suggested that German citizens have an affinity to precious metals, with gold held in highest regard. A recent survey by Steinbeis University in Berlin, supports this line of thinking. It revealed that Germans have been ‘hoarding’ their gold during the uncertain times of the pandemic. It was recorded that German citizens hold over 9,000 tonnes of gold, mostly in the form of bars and coins. This was an increase of 269 tonnes since the last survey in 2019 and the highest amount ever recorded. In comparison, the German Central Bank holds 3,362 tonnes in its vault.
In Russia, the Central Bank stated in their annual report that in 2020, it had reduced its holdings of EUR, USD and GBP in favour of gold, the Chinese Yuan and other currencies. Whilst their holdings of dollars decreased by 3.3% to 21.2% overall, their gold reserves increased to 23.3% from 19.5% a year earlier. As well as importing gold, Russia is also one of the world’s largest producers of the precious metal, second only to China. In a report by consultancy and analytics firm Institute of Geotechnologies, it was suggested that If Russia maintains its current growth trajectory, it may become the world leader in gold mining before the end of the decade.
The World Platinum Investment Council (WPIC) reported that the global platinum market will be more undersupplied this year than it previously anticipated. This is because the ongoing economic recovery has triggered a surge in industrial demand. In 2020, the price of platinum dropped to an 18-year low of $558 per ounce as demand from industry fell. Platinum has since more than doubled to $1,200 an ounce, but still falls short of highs seen between 2008 and 2014. As such, both analysts and investors have suggested that in the years ahead, as demand for platinum continues to increase, the price is likely to rise further. Platinum has a wide range of industrial uses, including the production of car exhausts. Physical market demand for platinum currently equates to around 8 million ounces a year, but the WIPC report has projected a supply shortfall of over 150,000 ounces in 2021, the third such annual deficit in as many years.
In pensions news, a study conducted by NTree International on the UK pensions market concluded that asset owners are keen to increase their exposure to precious metals. In the study, it was reported that 78% of pension funds believe that commodity markets have entered a ‘super cycle’, described as a decade long period during which commodities are predicted to trade above their long term price trend. As a result of these findings, it was suggested that over the next 12 months, 64% of UK pension funds expect to increase their allocation to gold, whilst 42% expect to increase silver. Platinum group metals are also of interest to investment funds, as 52% suggested they would overweight platinum whilst 43% expressed an interest in palladium.
Bitcoin vs. Gold
In the cryptocurrency space, JP Morgan analysts suggested towards the end of May that institutional investors may be panic selling Bitcoin holdings and turning to gold, amid a large sell off that pushed the Bitcoin price below the $40,000 barrier. “The bitcoin flow picture continues to deteriorate and is pointing to continued retrenchment by institutional investors,” the report stated. “Over the past month, bitcoin futures markets experienced their steepest and most sustained liquidation since the bitcoin ascent started last October.” The impact from the sell-off was not just felt for Bitcoin, as the total market capitalisation fell to $1.82 trillion – a drop of almost 15% in a single day.
The Royal Mint
In May, The Royal Mint Physical Gold ETC (RMAU) published its latest responsible sourcing verification - helping to set the standard for ESG credentials amongst physical gold ETF providers.
In April, The Royal Mint Physical gold ETC (RMAU) completed its’ twice yearly audit which verifies that 100% of gold bars are compliant with the LBMA ‘responsible sourcing’ programme. In addition, over 75% of the bars were produced post 2019. Good-delivery gold bars produced post 2019 must comply with the LBMA’s enhanced good delivery guidance, and RMAU has set the aim of 100% of its gold bars being produced post 2019 by the end of this year. The Royal Mint is a full London Bullion Market Association member, providing additional reassurance for investors.
Andrew Dickey, Divisional Director for precious metals at The Royal Mint, said: “We want investors purchasing RMAU to have complete confidence that gold bars backing the fund are responsibly sourced, and meet the stringent criteria of the London Bullion Market Association. We conduct twice yearly audits to check each gold bar, and remain fully compliant with LBMA’s responsible souring programme. We’re building on this commitment, and aim to have 100 per cent of our bars produced post 2019 by the end of the year.”